Well done to Poland for a strong FDI performance in these difficult times. It is the only country in the EU which doesn’t do recessions , and is attractive to businesses across a wide range of industry sectors. In particular, it currently has a strong shared services and BPO offer; is quickly building up its ICT credentials; and is winning lots of automotive investments. Go Poland!
Happy New Year!
As we start 2012, it is a good time to reflect and look forward. We are very pleased to welcome Courtney Fingar the editor of fDi Magazine to share her views on where FDI is going and where investment promotion agencies should be focussing their efforts.
Q: fDi Magazine recently celebrated its 10-year anniversary and you referred to some of the changes in the market since it started, as well as some of the constants. What big changes do you see for the next 10 years?
A: I see Brazil completing its ascent and establishing itself firmly as a world-leading economy and heavyweight on the world stage, and in Latin America generally there will be continued rises in FDI levels, incomes and living standards. Mexico is the big question-mark here, mainly for security reasons; its future hinges entirely on the extent to which violence in the border states can be contained and reversed. Within the US - as argued in a brilliant article by Michael Lewis recently - the shift in the economic centre of gravity to the Sun Belt states and away from the northeast and north-midwest (largely off the back of more business-friendly investment environments and faster job creation and thus more inbound migration) will have seismic political ramifications. I see at least some level of disintegration in the euro zone, and increasing clout, both economically and politically, for CEE countries such as Poland. I see a widening of the gap between northern and southern European countries. In Asia, the most interesting question is whether the political structure in China could change; I consider that highly possible. Some southeast Asian countries - Cambodia, Laos - will come out of the shadow of neighbours and become of investor interest in the way that Vietnam already has.
For all the talk of the potential for protectionism and isolationism as a natural reaction to some of the excess of globalisation, I do not see companies pulling back in any great number from crossborder expansion. However, due to a natural process of plateauing, we might not see the huge ramp-up in globalisation that characterised the 1990s, and FDI levels might not greatly exceed the pre-2008 high-water marks.
Q: If you were an investment promotion agency (IPA) in today’s FDI market, how would you be marketing your location?
A: Before marketing anything, I would do a very thorough examination of the location’s real (not imagined) strengths and assessment of where it can fit in the market. I would also insist that every single member of the team completes training in general business, business strategy and basic economics - after all, how can they pitch to companies if they don’t know how companies function or what they need? In the current climate companies are looking for bespoke solutions, and so it is essential that IPAs are able to carefully identify the most appropriate target companies, study up on the companies, and be able to present to the companies highly specific commercial opportunities in that location. A location can never be all things to all companies, so broad-brush marketing and generic brochures are just not going to cut it in today’s climate.
Q: What stories are you looking for from IPAs?
A: I am interested in anything that is unique. I am also interested - perhaps even more interested - in hearing about challenges they face and how they are working to overcome them, as opposed to just straight success-story type pitches.
Q: What IPAs have given you a surprise (good or bad)?
A: The most fascinating and surprising organisation carrying out investment promotion activities these days - whose work in this area I have had the great pleasure to witness first-hand - is the US Marine Corps. In line with the concept of what can be termed “economic counter-terrorism”, forward-thinking members of the military are utilising FDI as a tool for reducing violence and instilling peace in conflict-ridden territories, the idea being that creating jobs deprives radical groups of potential recruits and also illustrates to the local populace the gains that can be made in their own lives through channelling productive rather than violent energies. This worked to quite some significant effect in Al Anbar province in western Iraq, where the governor bought quickly and enthusiastically into these efforts. The result is a very intriguing scenario in which career military officers are now, in essence, learning the ins and outs of investment attraction. Actually, they are well cut-out for such a mission, because of their pragmatic, flexible and results-driven ethos, and I feel that most civilian IPAs could learn a thing or two from them.
Q: What are the favourite (over-used) words/terms that IPAs use when they are pitching to you?
A: “Strategic location” (complete with requisite map showing diametric circles radiating outwards from the location to show how it is, in fact, the centre of the region/world/universe); also “value-added services” and “moving up the value chain”. For once I would like to hear an IPA say, “You know what, for now, we need to just work to excel in more basic services and fill that gap before we seek upgrades”, because actually, there is still great demand and need for production facilities and what could be classed as low-end services. And I cringe horribly when anyone uses the term “glocalisation”, although to be fair, this most likely was the brainchild of a consultant somewhere and only a few IPAs have so far latched on to it. I wish they would stop!
It is always a pleasure to engage with a location which has real depth and its own style and sense of place. As opposed to some locations, which feel scratched together - a jumble of key industry clusters; an “available flexible highly-skilled workforce”; a few universities; and of course, an international airport within an hour’s drive. These locations which are fabricated for the purposes of FDI attraction tend to wear thin quickly and their lustre soon fades. Whereas the genuine article shines through consistently.
One such impressive location is the region of Catalunya in Spain. This is a location which doesn’t disappoint in its story telling. While the region’s investment promotion agency ACC10 may have had a few name changes over the years, its story has remained the same, offering a fascinating history with a dynamic present and a confident future.
In FDI promotion, a good understanding of the alphabet is useful, particularly with the letters “X” and “Y”.
These days, the location decision-makers in companies are mostly from Generation X (born between 1965 and 1976), but a lot of their location research is focused on how to attract and retain the talent of Generation Y (born between 1977 and 1998).
The investment promotion agencies are mostly led by Generation X’ers, but their teams are increasingly made up of Generation Y. To get the right messages across to the Generation X corporates, the IPAs need to ensure that X and Y work together on their messaging and delivery. So the equation for success is X+Y = FDI.
Best name award for a government fund to attract foreign investors must surely go to Korea’s recently established “Global Win-Win Fund”. Backed by the state-run Korea Finance Corporation, this fund aims to “help foreign investors hedge and diversify risks” when investing in Korean companies. It aims to bring in further expertise and technologies to the already uber-tech Korean economy.
Other FDI sweeteners being offered by the Korean government include tax-breaks; easier visa requirements; and the establishment of six free economic zones across the country where foreign investors get financial and legal incentives.
To find out about the latest trends in FDI from China we got in contact with our friend Geraldine, a Senior Foreign Legal Consultant at the Hong Kong office of Minter Ellison Lawyers. An experienced China cross-border investment advisor, she has kindly given us lots of valuable feedback to our questions:
Q: What are the latest trends re: outward investment from China?
A: Large resource-hungry Chinese State-Owned Enterprises (SOEs) have been the most well-known stereotype of the Chinese outbound investor over the last decade. There is no denying that, to feed China’s massive energy requirements, Chinese SOEs have made significant acquisitions of oil, natural gas and coal mines. Beneficiary regions and countries have included the Middle East and Africa as well as Canada and Australia.
However, this is by no means the complete story and it is becoming less so with each passing day. For example:
The pattern of investment has shifted from the predominance of large SOEs such as CNOOC and Sinochem to other investors, including less well-known private companies such as manufacturing companies seeking to acquire foreign brands and distribution networks. Chinese sovereign wealth and pension funds such as China Investment Corp (CIC), the State Administration for Foreign Exchange (SAFE) and the National Social Security Fund are also deploying huge amounts of funds under their management towards new markets. Finally, there are a growing number of high net worth investors who are looking for ways to generate investment returns, and they sometimes have personal preferences and tastes that drive their investment choices.
In my experience, Chinese investors are not particularly averse to either M&A or greenfield investments, although JVs are less common, as they are for any segment of investors unless mandated by legal or regulatory requirements, because of their inherent difficulties.
Overall, although energy and resource investments still count among the largest investments by Chinese enterprises, Chinese outbound investment is developing to a stage where it is no longer possible to say that one sector or type of investor or investment predominates.
Q: For investment promotion agencies (IPAs) targeting China, what marketing messages should they be communicating?
A: Chinese enterprises have grown increasingly sophisticated in the conduct of their investments and larger ones routinely engage professional advisors and perform detailed due diligence. They are adept at dealing in the commercial and regulatory environments of overseas markets.
However, if I can generalise, I would say that they are still relatively risk averse. Many SOEs have complicated and abstruse reporting lines and, to the outsider, appear to be extremely political. In such an environment, any hint of uncertainty, whether regulatory, commercial or litigious in nature, can be fatally damaging to a deal, because of potential fallout to any individual who makes a risky call. And with private enterprises, again generalising, their instinct is to go for an easy target or “low-hanging fruit”, otherwise there is no sufficiently strong incentive to expand outside of the “safety” of Chinese markets.
So, to the extent that Chinese investors perceive heightened risk factors, they will take note of this.
One area where they could be particularly sensitive is the risk of descrimination because of their status as Chinese nationals (for example, being subject to increased regulatory scrutiny). Therefore, one clear message that could be made to Chinese investors is that the investment landscape is not discriminatory towards Chinese investors, and could go so far as to single them out as welcomed.
Having said that, I think both the reality and perception of regulatory bias against Chinese investment is fading. Chinese investors are being actively courted by governments and businesses all over the world. Speaking from personal experience, I think the fear of bias has shifted somewhat. The Chinese are still wary of how welcome they will actually be, but this is more from a management, workforce and community perspective. The Chinese investor prefers to deal with Chinese labour and in many African countries, the Chinese have spent large amounts transferring their people abroad. Of course, this is not always feasible and in places like North America and Europe, it would take away from the very jobs that the community is trying to create or retain. So, in these markets, the Chinese investor will ultimately have to deal with a local workforce in a local community. The message to be projected here needs to be subtle, but it should assure the Chinese investor that its management will be welcomed and will find a comfortable (if not familiar) environment, that the workforce will be adaptable to working for Chinese owners, and that the community will be positively disposed to the new players in town.
A final message that I would suggest is a statement that the IPAs recognise and are prepared for the fact that Chinese enterprises seeking to invest abroad are themselves subject to approvals from Chinese authorities, which can be time-consuming and a bit of a headache for the investors themselves.
Q: How do you see outward FDI from China trending over the next 2-3 years?
A: Over the next 2-3 years, as China faces increasing food and land shortages, food related investment will increase. So will the renewable energy sectors, aided by government policies that are favourable to these sectors. Chinese enterprises may also be more motivated to acquire brands, IP rights and technology across a range of sectors, from nanotechnology to telecommunications to biotechnology and pharmaceuticals.
Engaging in outbound investment for a Chinese investor will increasingly “normalise” and I expect that regulations will be eased, making it quicker to obtain approvals.
Chinese private equity players have enjoyed an advantage over foreign private equity firms in China due to investment and foreign currency rules that have hamstrung foreigners, and like Chinese renewable energy companies, they have been growing more and more competitive, accumulating reputation and know-how, and of course access to funds. They will be the next significant class of Chinese investor abroad.
When locations put on events to say how wonderful they are, the clever ones have locally-based foreign corporates telling the story. After all, they bring credibility and peer appeal.
Today, Lisbon was in London to promote its attractions for FDI, and it was the corporates that Invest Lisboa brought along who convinced us of its strengths for businesses. The two location factors that stood out were people (a great workforce) and property (very attractive costs). Overall, we got the impression of an international city which leads a small determined country aiming to re-engineer itself through the current difficult economic times.
We think Lisbon is worth a look.
Well done Riga - chosen to be the next location for TechHub, the dynamic tech startup co-working space established in London right next to the “silicon roundabout”. TechHub Riga will open in January 2012 and will be a very useful addition to the fast growing tech scene in Latvia and Estonia.
Continuing the conversation on the wonder of apps, we are very pleased to see the launch of the free Tech City app for iphone and android - is this the first place marketing app for inward investment???
Tech City is demonstrating its tech credentials with this savvy move - well done!
What other exciting apps can we develop for the world of inward investment? If anyone is thinking about this and wants to work with us and our tech team on future apps development, do get in contact!
Powered by WordPress
